Argentina: Great announcements, small changes

Following the economic reforms made known last week towards the complete pesification of the financial system, which means the impossibility to make transactions in foreign currencies within the country, President Eduardo Duhalde’s administration prepares changes to the political structure of the Nation. This time, the Government designed a plan to cut the enormous expenses on the political administration. The new austerity program has been announced as the foundation of the “Second Argentine Republic”.

To succeed on his plan, Duhalde will require support from the Congress to change the Constitution. Apparently, this should not be a problem because the major parliament groups will back him on his efforts, due to the President is moving towards a reduction on the members of the lower and upper chambers and the modification of the electoral legislation. These reforms, in case to be implemented, will go in direct prejudice of small parties, which are mainly, left and center – left forces.

On the economic side, it is now becoming clear who won with the devaluation and the total pesification, which included loans. Obviously, those with millionaire debts in US Dollars, which are the largest local companies. In fact, the new system is more perverse than expected, because benefited enterprises took the money out from Argentina, securing funds in US Dollars at foreign banks in New York and London. Therefore, with these dollars abroad, they can pay debts at a peso devaluated to half of Dollar. In other words, their capital liabilities were reduced to the half.

The banks, however, will not lose. They will not return client savings in US Dollars; they will pay them out in Pesos, at 1.40 to the Dollar. This 40% extra cost will be afforded by the Government, by Treasury bonds to be recoverable in one year. The sum adds up to 20 billion US Dollars. In the meantime, banks sell Dollars at the free market value, which is 2 pesos per Dollar. What is more, on small loans, banks will be able to adjust the rate to the inflation; this procedure will increase the cost of given credits and could produce serious damages to small and medium size companies.

Hopes on the construction of a more equitable society in Argentina are rapidly vanishing. Those who participated on the political uprisings of December and January, start feeling betrayed by the new Government, and therefore, an increasing in the number of protest is expected for the following days.